- Samsung reported better-than-expected operating profit in the third quarter, although it fell 77.6% from a year ago.
- Although there was a year-over-year decline, operating profit this quarter increased 262.6% compared to the second quarter, suggesting that the oversupply of memory chips may have bottomed out.
- Samsung is the world’s largest maker of dynamic random access memory chips, which are used in consumer devices such as smartphones and computers.
General view of visitors at Samsung booth during chinajoy 2023 at Shanghai New Expo Center in Shanghai, China, July 28, 2023 (Photo by Ying Tang/NurPhoto via Getty Images)
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South Korea’s Samsung Electronics reported better-than-expected quarterly operating profit on Tuesday, despite a 77.6% year-on-year decline.
While there was a year-over-year decline, operating profit increased 262.6% in the third quarter compared to the second quarter, suggesting that the memory chip glut may have bottomed out. First quarter operating profit fell 85.15% compared to the fourth quarter of 2022, while second quarter operating profit only improved 4.68% compared to the first quarter.
Here are Samsung’s third-quarter results compared to estimates:
- Revenue: 67.4 trillion Korean won (about $50 billion) versus 67.8 trillion Korean won expected by LSEG analysts.
- Operating result: 2.43 trillion Korean won vs. LSEG analysts expect 2.3 trillion Korean won.
Samsung’s revenue fell 12.2% year-on-year in the quarter ended September, while operating profit fell 77.6% in the same period.
Earlier this month, Samsung estimated third-quarter revenue at 67 trillion Korean won and operating profit at 2.4 trillion won.
The South Korean chip giant is the world’s largest manufacturer of dynamic random access memory chips. Its memory chips are found in consumer devices such as smartphones and computers.
“In the fourth quarter, uncertainties remain regarding the market recovery due to wars and geopolitical risks, a gradual recovery in demand and ongoing adjustments in customer inventories,” Samsung said during its earnings call on Tuesday.
“Nevertheless, we are seeing early signs of demand gradually stabilizing and improving, supported by a recovery in consumer sentiment, easing inflation and new product launches by major customers, particularly in the PC and mobile segments,” Samsung said.
On the outlook for memory demand, Samsung said demand will pick up in the fourth quarter due to year-end promotions, new product launches by its major customers, as well as strong demand for generative AI.
Large language models like ChatGPT require many powerful memory chips that allow such generative AI models to remember details from past conversations and user preferences to generate human-like responses.
In a press release ahead of its earnings call, Samsung said the company had received “numerous buying inquiries as awareness grew that the industry had hit rock bottom following industry-wide production cuts.” It added that it is continuing to expand sales of advanced node products.
These advanced node products include DDR5 – double data rate 5 synchronous dynamic random access memory, and UFS4.0 – flash storage for the 5G era.
“Our view of a meaningful earnings recovery for the next few quarters, led by memory, remains intact, with the larger industry-wide production cuts, gradual improvement in demand trends, as well as mix improvement towards high average selling price products such as DDR5,” Goldman Sachs said in a report dated 12th of October.
The investment firm maintained its “buy” rating with an unchanged price target of 93,000 won. Samsung shares were down 0.30% at 67,100 won on Tuesday morning.
According to Counterpoint Research, global smartphone sales volumes fell 8% year-on-year in the third quarter of 2023, the ninth consecutive quarter of decline. This was largely due to the slower than expected recovery in consumer demand.
Smartphone and PC makers have been struggling with excess inventory of memory chips after stocking up to meet increased demand for consumer devices during the pandemic. Inflation has caused consumers to cut back on spending and limit purchases of consumer devices, leading to a decline in demand and prices for memory chips.
But the market grew 2% quarter-on-quarter, supported by a positive development in September, suggesting an impending market recovery.
“We expect earnings to recover from Q4 2023 as the product mix continues to improve due to increasing sales of high-bandwidth memory 3 and an increase in memory prices,” said SK Kim, analyst at Daiwa Capital Markets , in a statement dated Oct. 3.
“For storage, we expect a significant reduction in losses due to further improvement in the product mix and the reversal of inventory write-offs due to the recovery in storage prices. For Display, we expect further earnings improvement through the expansion of the range of OLED panels for iPhone 15 models,” said Kim.
Samsung said it will expand its sales of advanced node products to meet demand for high-performance chips for generative AI.
“We will actively address the demand for generative AI by increasing our HBM3 and HBM3E sales share due to the largest production capacity in the industry,” Samsung said on Tuesday, referring to its next-generation storage processors with high-bandwidth memory.
Local media reported that Samsung is expected to supply high-performance DRAM chips and HBM3 to US chip designer Nvidia. Nvidia shares are up 187.54% year-to-date thanks to booming demand for its AI chips.
Daiwa Capital’s Kim said she expects “growing opportunities related to AI demand” for Samsung in 2024.
“In addition to supplying HBM3 to Nvidia starting in Q4 2023 and expanding the offering in 2024, we expect Samsung Electronics to ship HBM3P targeting next-generation AI GPUs starting in mid-2024,” Kim said in a statement dated Oct. 3.